Toxic Chinese Drywall Problem Issue and Removal

Builder KB Home (KBH) has identified about 140 homes, primarily in Florida, affected by Chinese drywall, executives said in an earnings conference call Friday.

The Los Angeles-based builder estimates a repair cost of about $10 million, and it took a $6 million charge in the third quarter to increase its warranty liability.

Builders have been disclosing their exposure to allegedly defective drywall – also known as wallboard – imported from China during the housing boom. A growing number of homeowners complain that it generates sulfurous odors and corrosion. The complaints have led to continuing investigations by several government agencies. Most of the complaints have come from Florida.

Miami-based builder Lennar Corp. (LEN) previously confirmed that about 400 homes it built in Florida, mostly during its 2006 and 2007 fiscal years, have defective drywall. The company set aside $40 million for repairs. D.R. Horton Inc. (DHI), one of the nation’s largest builders, identified 75 homes in Florida and Louisiana with the potential problem. It set aside $6 million. Ryland Group Inc. (RYL) said it has between 50 and 60 homes in three Fort Myers, Fla., communities, with repair costs estimated at $4.5 million to $6 million, according to its latest quarterly financial filing.

KB Home, the nation’s fifth-largest builder by 2008 closings, said it continues to “review whether any additional homes may contain this drywall material.”

Earlier Friday, KB Home reported that, for the quarter ended Aug. 31, it lost $66 million, or 87 cents a share, compared with a prior-year loss of $144.7 million, or $1.87 a share.

Shares of KB Home recently were down nearly 9% at $16.92 in a broad market downturn.